The Principle of Conservatism

Question: Property and equipment is recorded at historical cost, which is subsequently depreciated over its

anticipated useful life. At some point, the asset is sold, traded, used up, or disposed of in some other manner. Land

is an exception in that it will last forever.

While in use, such assets may lose their value rather rapidly if adverse conditions arise. For example, the economy

or the environment might decline and impact the value of such assets. Increases in the fair value of property and

equipment are ignored but what about decreases?

If the value of property and equipment becomes impaired, is any accounting recognition made of that loss prior to disposal?

Is historical cost always the basis for reporting regardless of the worth of property and equipment?

For example, assume that a company constructs a plant for $3 million to manufacture widgets. However, shortly

thereafter, the global market for widgets falls precipitously so that the owner has little use for this structure. No

one wants to own a manufacturing plant for widgets. Does historical cost continue to be used in accounting for

property and equipment even if the value has been damaged significantly?

Answer: Accounting follows the principle of conservatism. Concern always arises when any property or

equipment is reported at an amount in excess of fair value. Because temporary swings in value can happen

frequently and then rebound, they do not require accounting modification. Historical cost remains the reporting

basis. Permanent declines in the worth of an asset, though, need to be noted in some appropriate manner.

Consequently, two tests have been created by FASB to determine if the value of property or equipment has been

impaired in such a serious fashion that disclosure of the damage is necessary.

If possible impairment of property or equipment is suspected, the owner estimates the total amount of cash that

will be generated by the asset during its remaining life. The resulting cash figure is then compared with the asset’s

current book value to see if it is lower. This recoverability test indicates whether a problem exists that is so

significant that immediate recognition is warranted.

Academic Heros
Calculate your paper price
Pages (550 words)
Approximate price: -

Why Work with Us

Top Quality and Well-Researched Papers

Our writers are encouraged to read and research widely to have rich information before writing clients’ papers. Therefore, be it high school or PhD level paper, it will always be a well-researched work handled by experts.

Professional and Experienced Academic Writers

For one to become part of our team, thorough interview and vetting is undertaken to make sure their academic level and experience are beyond reproach, hence enabling us give our clients top quality work.

Free Unlimited Revisions

Once you have received your paper and feel that some issues have been missed, just request for revision and it will be done. In addition, you can present your work to the tutor and he/she asks for improvement/changes, we are always ready to assist.

Prompt Delivery and 100% Money-Back-Guarantee

All our papers are sent to the clients before the deadline to allow them time to review the work before presenting to the tutor. If for some reason we feel our writers cannot meet the deadline, we will contact you to ask for more time. If this is not possible, then the paid amount will be refunded.

Original & Confidential

Our writers have been trained to ensure work produced is free of plagiarism. Software to check originality are also applied. Our clients’ information is highly guarded from third parties to ensure confidentiality is maintained.

24/7 Customer Support

Our support team is available 24 hours, 7 days a week. You can reach the team via live chat, email or phone call. You can always get in touch whenever you need any assistance.

Try it now!

Calculate the price of your order

Total price:

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Services

You have had a hectic day, and still need to complete your assignment, yet it is late at night. No need to panic. Place your order with us, retire to bed, and once you wake up, the paper will be ready.


Essay Writing Service

It does not matter the urgency of your paper, or the academic level, our team is ready to help you 24/7. Just contact us and all your academic needs will be sorted.


Admission Essays & Business Writing Help

A student is often required to write an admission letter requesting to be admitted in a certain institution. For you to be gain that admission in your dream institution, you must write a convincing letter. You can depend on our team for the best admission letters.


Editing Support

Academic writing is not just about getting information and throwing it all over. Our team will ensure you have a polished paper that is coherent and has a good flow of information. We also ensure the paper follows the correct formatting styles like APA, Harvard, MLA, Chicago/Turabian.


Revision Support

If our writers write a paper but you are not satisfied in one way or another, you can always ask for revision. This is totally free. Our writers and editors will revise your paper untill you are be totally satisfied. We as well offer revision for papers not done by our writers at a small fee.